Mr. KERRY. I than k the Chair. I thank my colleague, the chairman of the committee. I thank him for his work on this act and for his leadership within the committee so that we can proceed as he has described.

Most of the media attention with respect to the Y2K problem has been on big businesses, the challenges they face and the costs they are going to bear in order to fix the problem. But as my colleague has mentioned, small businesses face the same effects of Y2K as big businesses. However, they often have little or no resources available to devote to detecting the extent of the problem or to developing a workable and cost-effective solution. That is why we on the Small Business Committee are proceeding with this particular response which I think is most important.

It is in our economic best interest to make sure that all of our small businesses, some 20 million if we include the self-employed--are up and running soundly and effectively, creating jobs and providing services, on and after January 1 of the year 2000.

There are a lot of questions about what the full impact of the Y2K problem is going to be. Is it going to bring a whole series of nationwide glitches? Could it, in fact, induce a worldwide recession?

One hears differing opinions on the extent of that. I was recently at the World Economic Forum in Davos, Switzerland, and there was a considerable amount of focus there from sizable numbers of companies on this issue. I think it is fair to say that here in the United States we have had a greater response than has taken place in Europe or in many other countries. But it is interesting to note that the Social Security Administration, I understand, spent about 6 years and some 600 people, and spent upwards of $1 billion, in order to be ready and capable of dealing with the Y2K problem. Other Departments have spent significant amounts of money as well and have had very large teams of people working in order to guarantee that they are going to be safe. Compared to that, you have very large entities in Europe and elsewhere that are only just beginning.

So, if you look at the numbers of people and the amount of money and the amount of years people have been spending in order to try to put together solutions--obviously those experiences can be helpful to many other entities around the world as we cope with this problem. But the bottom line is, we know our economy is interdependent. We know that most of our technology, interdependent as it is, is date-dependent, and much of it is incapable of distinguishing between the years 2000 and 1900.

We have 10 short months now to become completely Y2K compliant, and national studies have found that the majority of small businesses in the United States are not ready and they are not even preparing. Specifically, the 1998 ``Survey of Small and Mid-Sized Business'' by Arthur Andersen Enterprise Group and National Small Business United found that only 62 percent of all small- and mid-sized businesses have even begun addressing Y2K issues. The good news is that a greater percentage of small- and mid-sized businesses are preparing for Y2K than last summer. The bad news is that they have only just begun that process and a significant group is taking a ``wait and see'' approach.

On a local level, Y2K consultants and commercial lenders in Massachusetts, from Bank Boston to the Bay State Savings Bank, tell us of reactions to the Y2K dilemma that vary from complete and total ignorance, or complete and total denial, to paralysis or simply to apathy.

I will give you an example. Bob Miller, the president of Cambridge Resource Group in Braintree, MA, shared with us what he has observed. Though his company specializes in the Y2K compliance of systems with embedded processors for Fortune 1000 companies and large State projects, he knows how real the technology problem is and how expensive a consultant can be. He has tried to help small companies through free seminars, but literally no one shows up. One time, in Maine, only 2 out of 400 companies responded. ``Small businesses just don't get it. Many think it is a big company problem, but it is not. It will bite them,'' says Mr. Miller. He advises companies to start now, and to build a contingency plan first, because it is so late in the game.

The owner of Coventry Spares, Ltd., a vintage motorcycle parts company, would not disagree with that. John Healy was one of those small business owners who thought it was somebody else's problem. It couldn't happen to him. Luckily for John Healy and his business, he got a scare and so he decided to test his computer system by creating a purchase order for motorcycle pistons with a receivable date of early January 2000. So what happened when he put the order into his system? He punched a key and he waited for his software to calculate how many days it would take to receive the order. He got back a series of question marks.

Then he turned to the company's software that publishes its ``Vintage Bikes'' magazine and he tested it with a 2000 date. His indispensable machine told him the date was not valid.

Mr. Healy's computer problems are, ironically, compounded by his own Yankee ingenuity. As his business evolved, he combined and customized a mishmash of computer systems. It saved money, it worked well, handling everything from the payroll to inventory management, but making these software programs of the various computers Y2K-compliant is all but impossible. As Mr. Healy said:

``[These programs] handle 85 percent of the business that makes me money. If I didn't fix this by the year 2000, I couldn't do anything. I'd be a dead duck in the water.''

When all is said and done, Mr. Healy estimates he is going to pay more than $20,000 to become Y2K-compliant, and that includes the cost of new hardware, operating system and database software and conversion.

So, how do we reach those small business owners who have been slow to act, or who, to date, have no plans at all to act? How do we help them facilitate assessment and remediation of their businesses? We believe the way we do that is by making the solution affordable.

According to the same Andersen and NSBU study that I quoted a moment ago, 54 percent of all respondents said ``affording the cost [was the] most difficult challenge in dealing with information technology.''

That sentiment was echoed by David Eddy, who is a Y2K consultant who owns Software Sales Group in Boston, and who testified before the Small Business Committee when we were putting this legislation together last June. Mr. Eddy recently wrote:

``Basically, all of our customers are having trouble paying for Y2K......The cost varies from client to client, but no business has ``extra'' money around, so they are struggling.''

So, Mr. President, cost is a very legitimate, albeit risky, reason to delay addressing the Y2K problem--saving until you are a little ahead or waiting until the last possible moment to take on new debt to finance changes. Those are strategies that many companies are forced to adopt, but those are strategies that can still leave you behind the eight ball as of January 1, year 2000.

If you own your own facility, you have to ask yourself, Is the security system going to need an upgrade? What will the replacement cost be? Will simple things work? Will the sprinklers in your plant work? What happens if there is a fire? If you own a dry cleaning store and you hire a consultant to assess the equipment in your franchise, will remediation eat up all of your profit and set you back?

These are the basic questions of any small business person in this country. Some business owners literally cannot afford to hear the answers to those questions. It may come down to a choice between debt or dissolution, or rolling the dice, which is what a lot of small companies are deciding to do. They say to themselves: I can't really afford to do it, I am not sure what the implications are, I am small enough that I assume I can put the pieces together at the last moment--so they are going to roll the dice and see what happens.

There is another problem with waiting. Just as regulators have forced lenders to bring their systems into compliance, the lenders themselves are now requesting the same compliance of existing borrowers and loan applicants. In Massachusetts, for instance, the Danvers Savings Bank, one of the State's top SBA lenders , has stated publicly that it will not make loans to businesses unless they are in control of their Y2K problems. The bank fears that if a small company isn't prepared for Y2K problems, it could adversely affect its business, which could then, obviously, adversely affect the loan that the bank has made and the small business ability to repay the loan, which adversely affects the bottom line for the bank.

The Year 2000 Readiness Act gives eligible business owners a viable option.

And that is why we ask our colleagues to join in supporting this legislation today.

This legislation will make it easy for lenders, and timely for borrowers, and it is similar to the small business loan bill that I introduced last year in Congress. It expands the 7(a) loan program, one of the most popular and successful guaranteed lending programs of the Small Business Administration.

Currently, this program gives small businesses credit, including working capital, to grow their companies. If the Year 2000 Readiness Act is enacted, those loans can be used until the end of the year 2000 to address Y2K problems ranging from the upgrade or replacement of date-dependent equipment and software to relief from economic injury caused by Y2K disruptions, such as power outages or temporary gaps in deliveries of supplies and inventory.

The terms of 7(a) loans are very familiar to those, obviously, within the small business community, and they have taken advantage of them. The fact is, these loans are very easy to apply for and to process. They are structured to be approved or denied, in most cases, in less than 48 hours. So for those who fear paperwork or fear the old reputation of some Government agencies, we believe this is a place where they can find a quick answer and quick help to their problems. We expect the average Y2K loan to be less than $100,000.

In addition, Mr. President, to give lenders an incentive to make 7(a) loans to small businesses for Y2K problems, the act raises the Government guaranties of the existing program by 10 percent, from 80 percent to 90 percent for loans of $100,000 or less, and from 75 to 85 percent for loans of more than $100,000. Under special circumstances, the act also raises the dollar cap of loan guarantees from $750,000 to $1 million for Y2K loans.

Eligible lenders can use the SBA Express Pilot Program to process Y2K loans. Under this pilot, lenders can use their own paperwork and make same-day approval, so there can be a streamlined process without a whole lot of duplication for small businesses, which we know is one of the things that most drives small business people crazy. The tradeoff for the ease and loan approval autonomy is a greater share of the loan risk. Unlike the general 7(a) loans, SBA Express Pilot loans are guaranteed at 50 percent.

We know that many small-business owners also have shoestring budgets, and that they are going to be hard-pressed to pay for another monthly expense. With this in mind, we have designed the Small Business Year 2000 Readiness Act to encourage lenders to work with small businesses addressing Y2K-related problems by arranging for affordable financing terms. For example, when quality of credit comes into question, lenders are directed to resolve reasonable doubts about the applicant's ability to repay the debt in favor of the borrower. And, when warranted, borrowers can get a moratorium for up to 1 year on principal payments on Y2K 7(a) loans, beginning when the loans are originated.

Mr. President, one final comment. As important as this Y2K loan program is, in my judgment, it has to be available in addition to, not in lieu of, the existing 7(a) program. It is a vital capital source for small businesses. We provided 42,000 loans in 1998, and they totaled $9 billion. That is not an insignificant sum. What we do not want to have happen is to diminish the economic up side of that kind of lending. With defaults down--and they are--and recoveries up and the Government's true cost under the subsidy rate at 1.39 percent, we should not create burdens that would slow or reverse the positive trend that we have been able to create.

To protect the existing 7(a) program, we have to make certain that it is adequately funded for fiscal years 1999 and 2000. And because the Y2K loan program is going to be part of the 7(a) business lending program, funds that have already been appropriated for the 7(a) program can be used for the Y2K loan program.

Already this year, demand for that lending is running very high. Typically, the demand for 7(a) loans increases by as much as 10 percent in the spring and in the summer. So we are entering the high season of cyclical lending within the SBA itself. If that holds true for the current fiscal year, the program may use nearly all of its funds to meet the regular loan demand. There may be even greater demand for Y2K lending as people become more aware of the problem with increased publicity and discussion of it in a national dialogue.

Under these circumstances, we need to be diligent about monitoring the 7(a) loan program to make certain there is adequate funding. I appreciate that Chairman BOND, who also serves on the Appropriations Committee, shares this concern and has agreed to work with me to secure the necessary funds targeted specifically for the Y2K loan program, and I thank Chairman BOND for his commitment.

I also thank Senators BENNETT and DODD and the Small Business Administration for working with our committee on this important initiative. We have tackled some tough policy issues, and the give-and-take, I believe, has made this legislation more helpful for businesses that face the Y2K problems.

I am very hopeful that all of our colleagues will join with us in voting yes today and that our friends on the House side will act as quickly as possible to pass S. 314. It is, obviously, a good program that will have a profound impact on the year 2000 and on the long-term economic prospects of our Nation.